Mercury Interactive Corporation (Nasdaq: MERQ) today announced that its board of directors has named Anthony (Tony) Zingale as CEO, replacing Amnon Landan.
Mercury's board of directors stated today, "Amnon Landan should be credited with establishing the company as a leader in its markets. However, the adverse findings of the special committee's investigation make it appropriate for him, and the other two individuals, to relinquish their positions".
Zingale joined Mercury in December 2004 as the company's president and chief operating officer. David Murphy, who joined the company in 2003 as senior vice president, corporate development, was named chief financial officer in place of CFO Douglas Smith. Dr. Giora Yaron, a member of the Mercury board since 1996, was elected chairman of the board. General counsel Susan Skaer will also resign.
The resignations and appointments followed the presentation of determinations by an internal special committee and its independent counsel, O'Melveny & Myers LLP to the board of directors regarding the its investigation of incorrect reporting of options.
The special committee was formed in June 2005 to conduct an internal investigation relating to past stock option grants in response to an inquiry which was initiated by the Securities and Exchange Commission (SEC) in November 2004.
As a part of its continuing investigation, the special committee determined the following:
- From 1995 to the present, there have been forty-nine instances in which the stated date of a Mercury stock option grant is different from the date on which the option appears to have actually been granted. In almost every such instance, the price on the actual date was higher than the price on the stated grant date. These instances represent the overwhelming majority of the grants between January 1996 and April 2002. The misdating occurred with respect to grants to all levels of employees.
- Landan, Smith, and Skaer were each aware of and, to varying degrees, participated in the practices discussed above. Each of them also benefited personally from the practices. While each of these officers asserts that he or she did not focus on the fact that the practices and their related accounting were improper, the special committee has concluded that each of them knew or should have known that the practices were contrary to the options plan and proper accounting.
- On at least three occasions, between 1998 and 2001, exercise dates for options exercised by Landan appear to be incorrectly reported, which would have had the effect of reducing his income and exposing the company to possible penalties for failure to pay withholding taxes.
- In addition, a $1 million loan to Landan in 1999 (which has since been repaid) did not appear to have been approved in advance by the board of directors and was referred to in some of the company's public filings, but was not clearly disclosed.
- Intentional selection of a favorable price for option grants appears to have ended in or about April 2002, at which time the company began to follow a different dating practice for grants.
- The special committee believes that questions should have been raised in the minds of the compensation committee members from 1995 through 2002 (who included present directors Igal Kohavi, Yair Shamir and Dr. Yaron) whether six grants that they approved by unanimous written consent were properly dated. It appears that the compensation committee members reasonably, but mistakenly, relied on management to draft the proper documentation for the option grants and to account for the options properly.
- The special committee believes that changes in board procedures made in recent years will prevent similar oversights occurring in the future.
- During the relevant period, Mercury's internal controls and accounting controls with respect to option grants and exercises were inadequate. The weaknesses allowed dates of both grants and exercises to be manipulated. They also allowed grant dates to be changed to provide employees with more favorably priced options. The company began to improve its controls and procedures in April 2002 and has continued to improve them.
- The special committee believes that changes that Mercury has made with respect to its option practices will help prevent a recurrence of the problems.
- Based on the evidence reviewed during its investigation, the special committee has concluded that the actions of Landan, Smith and Skaer are not acceptable.
Accordingly, the board accepted the resignations of Landan, Smith and Skaer. Landan is entitled to 60 days prior notice but was relieved of all his duties immediately.
Mercury stated that it is "working diligently" to determine the impact of the misdated stock grants identified by the special committee, and the impact of the new issues related to misdated option exercises and certain loans to officers in 1998, 1999, and 2001 on its current and historical financial statements included in its current report on Form 10-K and its report on Form 10-Q for the first quarter of 2005.
Mercury does not believe that these items will have an impact on its historical revenues, cash position or non-stock option related operating expenses.
However, as a result of the findings of the special committee, Mercury stated that it is not in a position to provide its entire financial results for Q3 2005. The company expects revenue to be $205 million to $210 million for the third quarter ended September 30, 2005. Due to the pending restatement, the Company is not able to give GAAP fully diluted earnings per share or non-GAAP fully diluted earnings per share at this time.
The company further stated that its ability to file amended reports by November 30, 2005 on Form 10-K and Form 10-Q with the SEC is in serious jeopardy.
Mercury would not provide guidance for Q4 2005, and said it anticipated a "challenging" fourth quarter.
The company anticipates providing the Nasdaq Listing Qualifications Panel panel with a revised plan of compliance by no later than November 15, 2005. Mercury could be delisted by Nasdaq in the event it does not complete the restatements and submit the required filings to the SEC by November 30, 2005.
Prior to joining Mercury, Zingale was president and CEO of Clarify, a publicly traded enterprise technology company that was a leader in the customer relationship management market from 1997 until it was acquired by Nortel Networks. in 2000. Following the acquisition, he served as president of Nortel's billion-dollar eBusiness Solutions Group. Prior to that, Zingale spent more than 10 years at Cadence Design Systems Inc.
Zingale said today, "Our constituencies can be fully assured that Mercury will be a model for best business practices and full compliance with all regulatory and legal requirements. This is a responsibility that we have to all our constituencies and is a core element of our business foundation going forward."
Published by Globes [online], Israel business news - www.globes.co.il - on Wednesday, November 02, 2005